Chinese government flexes
muscles with Uber, DreamWorks probes
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[September 02, 2016]
By Adam Jourdan and Michelle Price
SHANGHAI/HONG KONG (Reuters) - The
Chinese government said on Friday it was investigating two
high-profile takeover proposals involving U.S. companies, the latest
sign of its growing influence on whether deals are approved - even
those appearing to have little impact in China.
The Ministry of Commerce said at a briefing on Friday it was probing
ride-hailing giant Didi Chuxing's planned acquisition of U.S. rival
Uber Technologies Inc's China unit and Comcast Corp's proposed
purchase of movie studio DreamWorks Animation.
The scrutiny, announced the day before world leaders descend on
China's eastern city of Hangzhou for a meeting of the G20,
underscores the ministry's increasingly tough stance on companies
that strike deals without seeking its approval.
There had not been a filing for the Didi-Uber deal, the ministry
said last month. Comcast already said it had completed the deal for
DreamWorks, which may indicate it didn't think it needed to wait for
Chinese approval.
The ministry requires companies to notify it of transactions before
they close if those merging have combined global turnover in the
previous year exceeding 10 billion yuan ($1.5 billion) or their
combined China income exceeds 2 billion yuan.
Didi said its deal did not trigger these thresholds, while lawyers
said they were surprised that the DreamWorks deal was being probed
given its small China footprint.
"With the DreamWorks-Comcast deal I was kind of surprised," said
Wendy Yan, Shanghai-based partner at Faegre Baker Daniels.
The ministry said it had launched the investigation into the
proposed takeover following unspecified complaints that the
combination of Comcast, one of the largest U.S. cable and
broadcasting groups, with the movie studio could hurt competition in
the Chinese market.
"I'd be interested to know who made such complaints and how exactly
the (Comcast-Dreamworks) merger would affect the China market
because they are not in a dominant position," added Yan.
Comcast, owner of NBCUniversal, said in April it would buy
DreamWorks, the producer of the "Kung Fu Panda" and "Shrek"
franchises, for $3.8 billion. DreamWorks was one of the first
Hollywood names to open a production studio in China.
China's film market, the world's second largest, is a magnet for
movie producers looking to tap the country's 1.4 billion people,
even though there are signs that stellar box office growth may be
starting to slow.
Comcast announced the completion of the DreamWorks deal last week.
The ministry has the power to fine companies it believes should have
sought clearance, and can also force them to sell assets to get
approval, or even to unwind transactions.
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Reuters was unable to reach Comcast or DreamWorks for immediate
comment out of regular U.S. business hours.
CONSUMER ANGER
Lawyers said that the Didi deal to buy Uber's China unit had caused
a stir among local consumers and rivals. The two ride-hailing firms
were already the number one and two top players together controlling
around 90 percent of the market.
The ministry had signaled its discontent with the two companies last
month because they had not filed a merger application to the
regulator. A representative for Uber could not be immediately
reached for comment. A Didi spokeswoman said: "We are in
communication with the authorities."
Consumer groups and rivals have warned that fares could rise steeply
if the two companies join forces. Both Uber and Didi had spent
billions of dollars subsidizing fares in a price war to lure riders
and drivers.
Marc Waha, head of the antitrust practice at Norton Rose Fulbright
in Hong Kong, said a key concern for the ministry would be the
elimination of Uber as a competitor to Didi.
"If the market is considered to only comprise those two car hailing
services, the transaction could be seen as a merger from two-to-one,
which is likely to be problematic, however small the target is."
Adding: "Very often a small target acts as a maverick on the market,
leading to low prices."
The ministry has developed a reputation globally as a tough
regulator, but it has only blocked two transactions since China's
antimonopoly law came into force in 2008, compared with 1,447
unconditional clearances, Norton Rose data shows.
However, added Faegre Baker Daniels's Yan, Chinese regulators could
end up with a deluge of new deals to work through if the latest
probes were a sign of things to come.
"If the China government reaches out its hands too far they may need
to deal with things they are not able to do and they need to have
the manpower to review all these global mergers which may not have
China implications," she said.
(Reporting by Michelle Price in HONG KONG and Adam Jourdan in
Shanghai; Editing by Martin Howell)
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